Abstract
ABSTRACT Context: triggered in 2014, the Car Wash Operation (CWO) belongs to a process of changing the legal context, in the sense of greater responsibility and penalization of public and private companies’ decision makers for acts practiced in the exercise of their functions, object of the Directors’ and Officers’ liability insurance coverage (D&O). Objective: to evaluate the relationship between the growth in the revenues of D&O insurance premiums and the developments of the OCW in Brazil, under the hypothesis of a change in the perception of economic agents exposed to risks covered by D&O insurance, in a process known as probability updating. Methods: official monthly data for all active insurers, arranged longitudinally between 2003 and 2017, and using two-stage regression method for panel data. Results: the OCW had a positive effect not only to the probability of offering this type of insurance, but also to increase the volume of D&O premiums; these results are consistent with the probability-updating hypothesis. Conclusion: the OCW resulted in an increase in revenues of D&O premiums, but there was a negative relationship between OCW and the entire insurance market, suggesting significance of this operation in the sector retraction observed since its outbreak.
Highlights
The directors and officers liability insurance (D&O) is designed to protect executives’ assets in case they are held responsible for any harm to third parties, caused by the companies under their management
There are indications that the atypical development of the D&O insurance market in Brazil in that period is related to the updating of economic agents on the perception of exposure to risks covered by that line of insurance since Operation Car Wash (CWO)
The main objective of this study is to evaluate the relation between the growth in revenues of D&O insurance premiums in Brazil and Car Wash Operation (CWO), under the premise that the shock of demand for that type of protection occurred due to an updating on the perception of exposure to risks covered by that type of insurance, on the part of the exposed economic agents, after the developments of the operation, in a process known as probability updating (Fier, McCullough, Gabel, & Mansfield, 2015)
Summary
The directors and officers liability insurance (D&O) is designed to protect executives’ assets in case they are held responsible for any harm to third parties, caused by the companies under their management. There are indications that the atypical development of the D&O insurance market in Brazil in that period is related to the updating of economic agents on the perception of exposure to risks covered by that line of insurance since Operation Car Wash (CWO). Started in 2014, CWO belongs to a process of change in the Brazilian legal context toward greater liability and penalization of public and private companies’ decision-makers for acts practiced in the exercise of their functions – precisely the object of D&O’s insurance coverage. When started by the Brazilian Federal Police in March 2014, the operation was investigating the practice of financial crimes by organizations that operated in the clandestine foreign exchange market in Brazil, involving the cover up of assets, money laundering, and offshore account operations. The name ‘Car Wash’ refers to a chain of laundries and a gas station located in Brasília, used by one of the investigated organizations for moving illicit money
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